Europe’s wind industry flags further weakness in 2023 despite energy demand
The European wind industry has warned of continued difficulties in 2023 as *high materials costs and slow approvals for new wind power projects drag back profitability, despite rising demand for renewable energy…
The effects of the Russian war on Ukraine drove up prices for energy and important raw materials such as steel last year, creating a perfect storm for the European wind sector.
Despite escalating demand from governments and customers for renewable energy as a result of the energy crisis, the slow EU and UK approval processes have created a backlog of projects and delayed new turbine orders.
Global green energy company Siemens Gamesa reported Thursday that it had lost a staggering $967 million during the three-month period from between October to December.
The Germany-based company, which dubs itself as “the global leader in offshore power generation,” noted the wind industry has faced various unfavorable pressures leading to negative growth in recent months and years, in its earnings report for the first quarter of fiscal year 2023 released Thursday morning. The company added that governments would need to further assist the industry to ensure future positive growth…
Siemens Gamesa stated that it is facing headwinds that include slow permitting, electric grid constraints and regulatory uncertainty. Such market conditions are, in turn, causing “sizeable losses” in the wind business, employment destruction and investment constraint.
GE’s wind turbine business is also reporting losses. Its the long lead times between when contracts are negotiated and signed and delivery. And contracts with inadequate cost escalators. Add in rising interest rates making financing projects more costly.
No doubt the escalator problem is being addressed in new contracts. But then you sign a blank check when you sign a contract. The final cost is unknown and profitability is uncertain.
Its ironic that wind turbines are sensitive to inflation, but that seems to be the case. How do you deal with that? Many projects are being reevaluated. May be threatened or renegotiated.
And this when we need much more investment in green energy.
Get the govt to guarantee cost increases will be covered. The govt is the one who mandates “clean power”, so put the increases on them–or no clean power investments due to unpredictable price increases.
Yes. The “Free Market” includes the right/power/authority to NOT undertake projects that are deemed too risky. Hence, if the govt wants it done, they will provide the appropriate guarantees, thus making the project(s) less risky. The govt already does this with flood insurance and mortgages (Fannie and Freddie).
The far easier way to do it is to put escalator clauses in the production contracts.
As it turns out, wind farm producers (at least) are already confronting the issue.
GE, Siemens, Gemesa and Vestas have confirmed in statements to Bloomberg and in recent calls with analysts that the push to rapidly develop more powerful turbines has led to challenges. The companies say they are focusing on improving manufacturing operations and have acknowledged that it’s time to tap the brakes on the introduction of designs. “Rapid innovation strains manufacturing and the broader supply chain,” GE CEO Larry Culp said. “It takes time to stabilize production and quality on these new products.”
It’s the Wild West. Eventually, and within a few years it will settle down. Some designs will be standardized, some vendors and or manufacturers will exit, and this should cease to be an issue. There’s almost nothing that launches out of the gate perfectly, the wind industry is no exception.
At the same time, Vestas sold and installed its first wind turbine in 1979 and went public 25 years ago.
“Operating in around 90 countries, Siemens Gamesa offers an extensive range of onshore wind turbine technologies to cover all wind classes and site conditions. By listening to our customers - and backed up by 40 years of experience - we know just what it takes to develop and manage a successful onshore project.”
Yes, they’ve been around a while. However the “push” for bigger, better, more, more has only been in the last decade (or less) which has led to ever more design changes and hurried construction.
I know that the “25 years” looks like a long time, but it was almost 20 years between the Model T and the Model A, more than 20 between the Motorola Brick and the iPhone, or between the invention of the jet and the commercialization of it (not to mention several crashes.)
It’s not a long time for an industry with significant engineering to shake out and have a 50-100 year future or more.
The project, due to begin production in 2026, won a government contract at auction with a minimum price guarantee, called a contract-for-difference (CfD), worth 37.35 pounds per megawatt hour (MWh) in 2012 prices, around 45 pounds/MWh today.
…Duncan Clark, Head of Orsted UK & Ireland said in a statement. “Industry is doing everything it can to manage costs on these projects but there is a real and growing risk of them being put on hold or even handing back their CfDs,” he said.
Not a surprise. All wind turbine manufacturers are reporting losses on contracts. Inflation has driven up costs faster than contracts anticipated. Long lead time makes accurate bidding difficult. New cost escalators can make projects costly, even unprofitable.
Who should take the risk? Govt? Companies say not us.
How much do we want green energy? Who is willing to pay for it?
From February:
“Beleaguered wind turbine maker Siemens Gamesa, soon to be delisted and folded into parent Siemens Energy, said on Thursday its first-quarter net loss more than doubled on higher warranty provisions as a result of faulty components.”
This month we have a report from GCube Insurance: https://nawindpower.com/offshore-wind-industry-must-be-vigilant-as-turbine-technologies-scale-up
GCube Insurance, an underwriter for renewable energy projects, recently conducted research that suggests the offshore wind sector must take action to address mechanical breakdown issues, component failures and serial defects ensuing from the deployment of ever-larger offshore wind turbines.
GCube’s new report, entitled “Vertical Limit: When is bigger not better in offshore wind’s race to scale?” is compiled from 10 years of the company’s claims data…
Among the findings of the report, underwriters are concerned that 55% of all claims by frequency come from component failures during construction from 8MW+ machines, which now represent a larger share of total insured values (TIVs). This, combined with an increase in average offshore wind losses, up from 1 million GBP in 2012 to over 7 million GBP in 2021, is creating unsustainable financial risk, right when scaling is needed to bring about the energy transition.
Another major finding is that 8MW+ machines are suffering from component failures within the first two years of operation. This is juxtaposed against the time frame (five years) for component failures during operation in the 4 MW-8 MW category of turbines…
“The push to rapidly develop more powerful machines is piling pressure on manufacturers, the supply chain and the insurance market,” says Fraser McLachlan, CEO of GCube Insurance.
“Scaling up is an essential part of driving forward the energy transition, but it is now creating growing financial risks that pose a fundamental threat to the sector. We advise manufacturers to focus on improving the quality and reliability of a reduced number of products to put themselves back on a sustainable path of development,” he adds.
While Siemens Gamesa might be running at a loss that does not mean the unit margin is bad. It can mean the factory and equipment etc to build turbines costs money. Over time that investment may be very good. Later on profits can possibly be reported. Although now internal reporting would happen.
An insurance company reporting claims are bad? What will they think of next?
I guess we need to soften for the insurance company?
“The politics can change when people have to pay.”
In Massachusetts, developers of the 1.2-GW SouthCoast Wind project now have joined those of its peer project, the 1.2-GW Commonwealth Wind, in officially cancelling a power purchase deal. Regulators have not yet OK’d the firms to rebid on the projects’ capacity in the next state wind procurement in 2024, but that could happen, along with fines of up to $60 million for each, state legislator Jeffrey Roy said June 12.
…the SouthCoast filing showed data from consultant Wood that wind project construction costs rose by more than 20% since 2019, with steel up 11%, in addition to higher financing costs. “It will take several years and significant investment to overcome some of these challenges,” said Wood…
In New York, developers Orsted and an Equinor-BP team are seeking price adjustments in existing contracts, claiming those included in the state’s current offshore wind procurement should apply retroactively. Exact adjustment amounts sought are redacted, but a June 7 report in Commonwealth said one filing reference to the state’s new inflation adjustment formula “indicated a price increase of 23% would be warranted.”
The Equinor-BP filing, on behalf of its 3.3 GW of state projects, bolstered its claim with an outside cost analysis from sector consultant Wood Mackenzie that “the price of components for offshore wind projects will continue to experience significant pressure through at least the end of the decade.”…
A utility board official voiced concern at a June 7 meeting that the state “cannot afford any more delays” to meet its goal of 11 GW of offshore wind power by 2040, with pressure rising from sector opponents over whale deaths and land-based grid connection cabling routes.
“It’s one thing to announce a project, it’s another thing to pay for it,” said power sector analyst Paul Patterson at Glenrock Associates. “The question is how much appetite do states have to raise rates to meet developers demands. The politics can change when people have to pay.”
